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Time in the market something something timing the market. I think where you get the most gain with managed funds is emerging market and special sit type funds where unique insights and knowhow can provide value beyond what the rest of the market can easily recognise.
A couple of other points spring to mind, 1. not losing money is usually more important than making it, 2. depending who it is you can also have compliance issues if a stock, or group of stocks in one sector, grow so much to unbalance the portfolio.
Still very interesting.
hugo7-
- not losing money is usually more important than making it
Now, where have I heard that before... "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1."
Classic example of your second point being Tesla, it's stratospheric growth has caused many funds to to either re-think their single name and/or sector limits or regularly trim and take profits. And in the case of Baillie Gifford it's a massively outsized exposure to one name for the firm, I'm sure their chief risk dude has been having kittens over that.
- not losing money is usually more important than making it
ElGonzo
A few years ago at my previous job I got talking to one of the portfolio managers after hours. A+ rated guy in the industry, incredibly smart and with a fantastic track record of outperformance. Value investor through and through with 20+ years experience and comfortably taking home low to mid 7 figures each year.
Anyway, fascinating guy to chat with and after a quite a few beers he started telling me about a little exercise he carries out each year for the main fund that he runs. On the first calendar day of the year he takes the holdings of his fund and copies them to a paper portfolio that he leaves untouched until the end of the year. The real fund that he actively manages undergoes various changes throughout the year, whether that's adjusting weights to keep within sector or country limits, selling names the team no longer has conviction in or buying new ideas, etc. It is actively managed after all, that's his job.
Final day of the year comes round and he compares his 'untouched' paper portfolio with the real one. 12 out of 12 years the untouched paper portfolio has outperformed. The best thing he could do for the fund and it's investors is to do nothing at all most of year. He was, as he put it, 'paid handsomely to travel the world, work long hours and mostly detract value throughout the year because I have to be seen to be doing something'.
Shouldn't read too much into it I guess, just an anecdote that stuck with me.